The real estate crowdfunding is one of the fastest growing areas in the European and international crowdinvesting landscape. Above all, it seems to be the only area that knows no crisis, growing even when other types of online capital raising come into distress-as has happened in Italy.

Real estate crowdfunding can be either equity or lending, although it is the latter that is most successful. But How do equity or lending crowdfunding decline in real estate and which one is better to choose? Each mode has advantages and critical issues to be evaluated according to the type of project, the status of the sponsoring company, and the objectives of the collection: in this article we offer a useful comparison to understand equity and lending real estate crowdfunding And to make the best use of it.

What is real estate crowdfunding?

With the term real estate crowdfunding refers to the raising of capital online by multiple investors to finance real estate transactions. The project may involve the purchase, construction, renovation, or development of a property, which is then intended for sale or rent.

Depending on the model chosen, the investor may become:

• partner in the initiative, through the purchase of shares (equity);
• Lender, which receives the return of the lent capital with interest (lending).

These forms of real estate financing have gained popularity because. They democratize access to the housing market, a sector traditionally characterized by high barriers to entry due to the large amounts of capital required.

Thanks to simple online platforms, even small savers can now participate in real estate projects of a certain caliber, diversifying their investments with small amounts. The growth of real estate crowdfunding is thus not just an evolution of financial instruments, but reflects a broader change in investor behavior.

This phenomenon, in turn, can spur greater competition and innovation within the real estate sector, as project developers now have access to alternative financing channels and a broader base of potential lenders.

Equity real estate crowdfunding

In the equity model, the investor buys a stake in the company managing the real estate transaction, often a special purpose vehicle (SPV) established for that specific transaction. In this way, he acquires the right to participate in the Profits from the rental or sale of the property, if the project generates positive cash flows.

For investors, equity crowdfunding is an opportunity to invest in the purchase of a property without having to have the substantial cash needed to purchase an entire property, but rather by winning only a share of it. 

Let us now look at the benefits for businesses that choose to financing a real estate project with equity crowdfunding.

• Non-repayable collection: no debt is incurred.
• Opportunities to access capital also for startups and projects with a high degree of innovation.
• Maintaining strategic control of the project (while diluting the ownership share).
• Involvement of investors: they can become ambassadors of the project and form a community that contributes to the visibility and promotion of the project.
• Marketing tool and market validation: equity crowdfunding is also an opportunity to strengthen corporate visibility and reputation and test market interest in a new real estate project.

The other side of the coin highlights some disadvantages, both general and specific to the real estate field.

• Capital dilution: the issuance of new shares to investors results in a dilution of the participation of founding and pre-existing shareholders. However, the transfer of shares does not necessarily involve the transfer of administrative rights: we discussed this in our article on the governance in equity crowdfunding.
• Substantial bureaucracy: a capital increase and adjustment of corporate bylaws are required.
• Difficulty in conveying project uniqueness: real estate projects tend to look very similar to each other, and to attract investors it is necessary to be able to communicate uniqueness and exclusivity. It is also more difficult to study attractive rewards for real estate projects.
• Transparency and reporting requirements: the presence of a large number of minority shareholders imposes obligations for transparent information and regular reporting on the progress of the project and the company.
• Length of operation: the crowdfunding campaign may take as little as 1 or 2 months, but before the capital is disbursed, some bureaucratic steps are required that lengthen the time, often a critical factor in real estate projects.

When to choose equity

Equity is suitable for real estate development or redevelopment operations with a medium- to long-term horizon and high growth potential. It is ideal for innovative projects, urban regeneration, or proposals with high environmental or social impact.

Lending real estate crowdfunding

In lending crowdfunding, investors lend money to the company sponsoring the real estate project, which agrees to repay it with interest at set maturities. This interest can be paid in different ways:   

• Periodically: in the form of coupons (e.g., monthly, quarterly, or semiannually) throughout the life of the loan.
• In a lump sum at maturity (Bullet Loan): the accrued interest is paid in full at the end of the financing period, at the same time as the repayment of the loaned principal. The maturity of the loan is generally predefined and short-to-medium term: the typical duration of these transactions usually ranges from 6 to 36 months.

Real estate lending crowdfunding is hugely successful because it is the easiest way for an investor to access profits in the real estate market; it is an easy-to-understand and short-lived type of operation. For entrepreneurs, it is a very valuable tool because of the opportunity to obtain liquidity quickly. 

But let's look in detail at all the advantages of real estate lending crowdfunding for enterprises.

• Quick turnaround time: the contractual structure is simpler than equity, and capital disbursement at the end of the campaign is almost immediate. Liquidity also arrives more quickly than a bank's process.
• No sale of shares: maintaining full control of the company and no complication of the corporate structure.
• Certain and programmable costs: the interest rate is defined ex ante by the company together with the crowdfunding platform, based on the level of risk calculated by the latter.
• Ability to split a transaction into multiple tranches: multiple successive lending crowdfunding campaigns can be done to obtain liquidity to support different phases of a real estate project.

Lending crowdfunding also has its potential drawbacks, of course.

• More expensive: the principal has to be repaid, with interest, regardless of the actual profit made from the project, and the rate is usually higher than the average bank credit rate.
• Requirement of financial strength: it is necessary to demonstrate creditworthiness to the crowdfunding platform in order to launch the campaign.

When to choose lending

Lending is best suited to short and low-to-medium risk real estate transactions: quick renovations, purchase and resale, bridge loan pending mortgage or outright sale. 

In particular, it can prove particularly strategic for real estate developers to finance the initial stages of a project, such as land acquisition, design costs, or site start-up. It can also serve as a "bridge loan" pending the provision of more substantial bank financing or the completion of first sales. In this way, Lending crowdfunding bridges temporary liquidity gaps that might otherwise block or delay the progress of work. It is ideal for enterprises with good history and repayment capacity.

Diffusion and performance: what does the market say?

According to data from the Milan Polytechnic's Crowdinvesting Observatory, Real estate is the dominant sector in lending crowdfunding in Italy, with much higher funding volumes than equity. This is because real estate operations lend themselves well to short-term structures with clear and predictable repayment schedules.

Equity, on the other hand, grew steadily in real estate until 2024, especially in urban regeneration projects or the most innovative segments of real estate (e.g., cohousing, senior living, sustainable housing). Since 2024 it has also begun to register a negative sign. The particular conjuncture we described in theCrowdinvesting Observatory report article. requires us, however, to stand by and watch what happens in the coming years.

Globally, the real estate crowdfunding market has shown robust growth, reaching a cumulative funding volume of 52.7 billion euros at the end of 2023, up from 45.2 billion the previous year. The lending segment also remains the leading source of funding globally. 

They are Commercial projects and those in rural areas on the rise. This evolution could reflect changes in housing and investment preferences, influenced by factors such as the search for larger spaces post-pandemic, consolidation of remote work, or a potential saturation and high opportunity costs in large traditional urban areas. These elements could prompt developers and investors to explore new geographies or types of intervention, such as redevelopment of hamlets or development in well-connected peri-urban areas.

Equity or lending in real estate crowdfunding? How to choose

The choice depends on several factors:

	Lending	Equity
Project duration	Short (<24 months)	Medium-long (>24 months)
Risk level	Low to medium	Medium or high
Structure of the enterprise	Consolidated, with strong balance sheets	Startup or project SPV
Return capacity	Needed	Not required
Communication and marketing	Secondaries	Strategic
Objective of the collection	Liquidity	Growth, visibility, engagement, networking

Real estate crowdfunding is not a "one size fits all" tool. Equity and lending are two different models, each with specific advantages. The choice depends on the nature of the project, the risk profile and goals of the sponsoring company, but also on other elements of the business strategy within which crowdfunding is to be integrated.

For some real estate operators, moreover, it can also be strategic to combine the two modes, using lending for an initial operational phase and equity for consolidation and expansion; or conversely, equity to validate an innovative project at an early stage, when the risk profile is higher, and then lending to carry it forward once it gains strength.

In closing, we also stress the importance of being alert to new online capital raising tools, such as the asset tokenization, which particularly lends itself to the fragmentation of real estate for the purpose of raising capital, for example.